Can Blender open .DDS files?
Yes, Blender does open .dds files, though Cycles currently has a bug in 2.79 where some .dds image textures can't be seen in rendered viewport or in the final image, showing a pink texture instead.

This can be solved by converting the image to another format, like .png.

Here's a great answer on how to use an image texture in Cycles: How do I put an image texture on a material in Cycles?

Here's a similar question (and answer) for Blender Internal: [How to] add an image to an object [in Blender Internal]